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Like everyone else, elite investors make mistakes. Some of their top consensus picks, such as Amazon, Facebook and Alibaba, have not done well in Q4 due to various reasons. Nevertheless, the data show elite investors’ consensus picks have done well on average over the long-term. The top 15 S&P 500 stocks among hedge funds at the end of September 2018 returned an average of 1% through March 15th whereas the S&P 500 Index ETF lost 2.2% during the same period. Because their consensus picks have done well, we pay attention to what elite funds think before doing extensive research on a stock. In this article, we take a closer look at ProAssurance Corporation (NYSE:PRA) from the perspective of those elite funds.

ProAssurance Corporation (NYSE:PRA) shares haven’t seen a lot of action during the third quarter. Overall, hedge fund sentiment was unchanged. The stock was in 13 hedge funds’ portfolios at the end of December. The level and the change in hedge fund popularity aren’t the only variables you need to analyze to decipher hedge funds’ perspectives. A stock may witness a boost in popularity but it may still be less popular than similarly priced stocks. That’s why at the end of this article we will examine companies such as National Vision Holdings, Inc. (NASDAQ:EYE), Myriad Genetics, Inc. (NASDAQ:MYGN), and HB Fuller Co (NYSE:FUL) to gather more data points.

Hedge funds’ reputation as shrewd investors has been tarnished in the last decade as their hedged returns couldn’t keep up with the unhedged returns of the market indices. Our research has shown that hedge funds’ small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the market by 32 percentage points since May 2014 through March 12, 2019 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter.

What does the smart money think about ProAssurance Corporation (NYSE:PRA)?

At the end of the fourth quarter, a total of 13 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 0% from one quarter earlier. By comparison, 12 hedge funds held shares or bullish call options in PRA a year ago. With the smart money’s sentiment swirling, there exists an “upper tier” of noteworthy hedge fund managers who were adding to their holdings considerably (or already accumulated large positions).

More specifically, Royce & Associates was the largest shareholder of ProAssurance Corporation (NYSE:PRA), with a stake worth $66 million reported as of the end of September. Trailing Royce & Associates was Diamond Hill Capital, which amassed a stake valued at $42 million. Renaissance Technologies, Polar Capital, and AQR Capital Management were also very fond of the stock, giving the stock large weights in their portfolios.

Since ProAssurance Corporation (NYSE:PRA) has faced falling interest from the smart money, it’s easy to see that there were a few money managers that slashed their full holdings last quarter. Interestingly, Matthew Hulsizer’s PEAK6 Capital Management dumped the largest investment of all the hedgies watched by Insider Monkey, comprising close to $1.1 million in stock. Brandon Haley’s fund, Holocene Advisors, also sold off its stock, about $0.8 million worth. These bearish behaviors are important to note, as aggregate hedge fund interest stayed the same (this is a bearish signal in our experience).

Let’s now take a look at hedge fund activity in other stocks – not necessarily in the same industry as ProAssurance Corporation (NYSE:PRA) but similarly valued. We will take a look at National Vision Holdings, Inc. (NASDAQ:EYE), Myriad Genetics, Inc. (NASDAQ:MYGN), HB Fuller Co (NYSE:FUL), and Inovalon Holdings Inc (NASDAQ:INOV). This group of stocks’ market values are similar to PRA’s market value.

As you can see these stocks had an average of 15.25 hedge funds with bullish positions and the average amount invested in these stocks was $186 million. That figure was $173 million in PRA’s case. Myriad Genetics, Inc. (NASDAQ:MYGN) is the most popular stock in this table. On the other hand Inovalon Holdings Inc (NASDAQ:INOV) is the least popular one with only 13 bullish hedge fund positions. Compared to these stocks ProAssurance Corporation (NYSE:PRA) is even less popular than INOV. Hedge funds dodged a bullet by taking a bearish stance towards PRA. Our calculations showed that the top 15 most popular hedge fund stocks returned 24.2% through April 22nd and outperformed the S&P 500 ETF (SPY) by more than 7 percentage points. Unfortunately PRA wasn’t nearly as popular as these 15 stock (hedge fund sentiment was very bearish); PRA investors were disappointed as the stock returned -12.9% and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 15 most popular stocks) among hedge funds as 13 of these stocks already outperformed the market this year.

Disclosure: None. This article was originally published at Insider Monkey.

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